Economic Law James V. Feinerman James M. Morita Professor of Asian Legal Studies Georgetown University Law Center January 2013

Non-tariff Barriers to Free Trade Shortcomings of Chinas multi-layered, opaque regulatory approval systems; Chinas State-owned enterprises drive market behavior; failure adequately to protect intellectual property rights; and rule of law issues, eg. contracting

Regulatory Framework History –Command economy –Strong control by State Planning Commission (now the National Development and Reform Commission) –Government owned and operated enterprises –Top-down regulation

Regulatory Framework Characterized by –Administrative misunderstanding of policy issues underpinning regulations eg. competition laws –Embryonic rule of law creates inconsistent interpretation, e.g.: priority –Inconsistency of implementation between authorities/levels of government –Lack of transparency – no judicial review

Private Law Re-emergence of the principle of private autonomy Codification of civil law Corporate Law –General issues about company and enterprise law –The responsibility of directors and managers –Shareholders right to bring derivative actions –Strengthening corporate social responsibility Corporatization of state enterprises Protection of private enterprises Legislation on investment funds The securities law of 1998 Macro-economic control legislation Competition law Consumer law

Labor law and the protection of labor rights The right to work The right to wage payment The right to take rest, have holidays and leave The right to obtain protection of occupational safety and health The right to develop job skills and to attend job training Labor contract and the right to bargain collectively The right to organize trade unions The academic exploration on the possibility of legalizing the right to strike Supervision and inspection of labor rights violations Employee participation schemes

Other Commercial Law Intellectual Property Law Financial Law Guarantee Law –Suretyship –Mortgage –Pledge –The relatively independent nature of guarantee contracts Globalization of the Chinese economy and the countrys wish to join the WTO Special Industry Law

Social Law Social security law –Legal position of the right to social security in the Chinese legal framework –History of social security reform –The level and structure of social insurance The types of social insurance - legal reforms in China –Pension insurance –Social medical insurance –Supplementary pension system –The management and administration of social insurance funds –The right to social relief and the safety net for urban poor The right to social welfare Poverty alleviation programme in China Direction for further reform Environmental law and natural resources law

State-owned Enterprises State Assets Supervision and Administration Commission (SASAC) –Supervises the Governments interest in 200 largest enterprises –Its task – modernization –Creates 14 million unemployed workers p.a.

State-owned Enterprises (SOEs) –Most significant Sino-foreign transactions involve SOEs –SOEs drive market behavior –Reform process outcomes are critical to trade liberalization

Intellectual Property Is China serious about enforcement of IP rights post-WTO? China produces 350,000 technologically trained engineers every year, who in turn are generating world class technology We under-estimate Chinas technological capacity

Intellectual Property Protection of technological advantages is vital for foreign manufacturers 43,000 infringement claims over the past 12 months Most processed by the State Administration for Industry and Commerce (SAIC), not the Courts Reliance on administrative functionaries Lack of judicial review

Rule of Law Contracting – Impediments to Free Trade Is my contract binding? Western approach –Expectation of failure –Focus on written documents –rules for the engagement of war –Litigation –Termination of business relationship

Rule of Law Contracting (cont) Chinese approach – why relationships are important –Agreements in principle, MOUs, LOIs, HoA –Contracts – statement of intentions at the time –Commercial, financial, legal matrix –Negotiate difficulties – with someone they trust –Government role is crucial

Summary –An FTA with China? –To negotiate an FTA without regard to these non-tariff impediments to free trade would be to delude ourselves that an FTA will deliver broad-ranging access to Chinas markets